Is it Profitable to Buy Real Estate in Spain?

When it comes to buying real estate, Spain has always been and remains one of the most attractive countries in the European Union. Spanish property remains relatively affordable, at least when compared to prices in the most economically developed EU countries. Additionally, demand for it significantly increased after Britain left the European Union, with wealthy Brits rushing to buy property in affordable and always warm Spain.

However, the situation with the coronavirus pandemic and the subsequent "global quarantine" has intervened. The impact on the Spanish real estate market cannot be ignored. What does the market look like shortly?

The Main Reasons Why Buying Spanish Property is Profitable and Convenient

Spanish real estate almost always yields profit. This is primarily due to the excellent natural conditions of the country (warm climate, many sunny days a year, presence of magnificent coastal regions with developed tourist infrastructure). Spain is renowned for its architecture, and unique culture, which consistently attracts millions of tourists. Moreover, affordable, relatively inexpensive education and well-developed student programs interest foreign applicants and students. These factors lead to consistently high demand for rental housing here.

There are other, more specific reasons as well:

  • Spanish laws allow real estate to be registered in the name of a foreigner—an individual. In most EU countries, registration is only permitted for legal entities.
  • Spain has long and successfully operated an investment program for the sale of residence permits—so-called Golden Visas. The overwhelming majority of investors participate in this program precisely through real estate purchases. The minimum investment in this case is €500,000.
  • Real estate in the Kingdom of Spain can be purchased using a mortgage. The main condition is that the down payment must be at least half the transaction amount. It is worth noting that the interest rate on such a mortgage does not exceed 4%.
  • The Spanish real estate market has a common practice of preliminary agreements. The buyer pays the seller a kind of deposit, amounting to no more than 10% of the property's value. From that moment, the property is taken off the market. If the buyer backs out, they lose the deposit amount. But if the seller changes their mind, they will pay the buyer double the deposit amount.

Important: If a foreigner is participating in the Golden Visa program, the deposit agreement is grounds for beginning the residence permit application process.

Property Prices in Spain and Regional Differences

The most dynamic segment of the Spanish real estate market has been and continues to be transactions involving luxury housing. For example, last year, in 2019, their number increased by 40%, while the number of transactions for all other types of real estate grew by less than 30%. Experts also noted an increase in the average price of such transactions: the average check for luxury properties has already exceeded €2 million.

As of the beginning of this year, the average housing price across the country was €1765 per square meter.

Interesting Fact: The price peak was observed in 2007 when a square meter in Spain was valued at €2053. This fact, among others, indicates that the market still has clear growth potential.

At the same time, housing prices, as well as demand, vary significantly depending on the region. The highest demand is for properties located in major cities, always filled with tourists. Primarily, this includes Barcelona, Madrid, and Valencia. Popular beach holiday regions, with an abundance of hotels, restaurants, casinos, etc., also do not lag, and sometimes even surpass them. These include the Mediterranean coast, the Balearic, and the Canary Islands, especially Tenerife.

They are significantly outpaced by inland and northern provinces, with smaller populations, specializing in agriculture. The price per square meter here is sometimes less than €1,000 (autonomous regions of Extremadura, Castilla-La Mancha), while in Tenerife or Barcelona, it can exceed €3,000.

Typically, foreign buyers of Spanish real estate fall into two categories:

  • Those purchasing housing for their own needs.
  • Those acquiring it to rent out and earn dividends. This category almost always seeks properties on the coast or islands, where the tourist season is longer and demand for rentals is higher.

The State of the Real Estate Market in Early Fall 2020 and Near-Term Prospects

The pandemic and the associated decline in the European economy have significantly complicated forecasts and assessments of real estate markets. It is already clear that the Spanish market has so far suffered much less than the country's economy as a whole. Housing prices have risen by 1-2% over the past six months, which is significantly less than the comparable figures for 2019. At the same time, many experts expected prices to fall, so the actual picture can be considered a success.

Most experts agree that the market will still experience a decline, but somewhat later, by the beginning of next year. Estimates vary only in how significant the price drop will be. However, everyone agrees that there will be no catastrophic decline, and prices will return to their previous levels fairly quickly.

On the Safety of Real Estate Transactions in Spain

The "rules of conduct" here are very transparent, strict, and under constant control by notaries, who act as state officials. And this is yet another reason for the popularity of the Spanish housing market. Before carrying out a transaction, especially if you are a foreigner, it is important to consult with lawyers familiar with the specifics of the legislation. Without thorough legal preparation, the transaction may not pass the notary's inspection.

Important: Please note that starting next year, the income tax rate for foreigners, and non-EU residents, will increase to 24%.

If the property is purchased on the secondary market, a transfer tax must be paid, and if it's in a new development—a Spanish VAT and stamp duty. Land and notary fees also cannot be avoided.

In Conclusion: Is Buying Property in Spain Worth It?

In summary, despite unforeseen circumstances, the Spanish real estate market has not lost its appeal. Moreover, right now, or in the next six months, purchasing property here will be particularly advantageous. The risk of loss in this market remains minimal.